Dollar smuggling

New York-based media outlet ‘Bloomberg’ has revealed in its latest report that around $5 million are being smuggled from Pakistan to Afghanistan on a daily basis. It says that the smuggling of dollars provides “some support for the squeezed economy after the US and Europe denied the Taliban regime access to billions in foreign reserves.”

Calling smuggled dollars from Pakistan a lifeline for the Taliban government, the report highlights that although the illicit flow of dollars is helping Afghanistan, it is hurting Pakistan’s national economy quite badly. When the Taliban recaptured Kabul after almost two decades in August 2021, the US and Europe froze more than $9 billion in Afghanistan’s central bank reserves.

Afghanistan’s banking system has not been linked to international financial institutions since the US withdrawal. However, the Taliban-run central bank, Da Afghanistan Bank, reportedly injects $17 million into the market every week, suggesting that the central bank has plenty of dollar reserves despite sanctions and internal turmoil.

The local Afghan currency, which was 124 per US dollar in December 2021 after the Taliban takeover, has now strengthened to around 90 per dollar. This trend has made Bloomberg declare Afghanistan’s currency as one of the best performers in the world during the last 12 months.

According to the report, Pakistan’s currency has suffered the worst decline and has ranked at the lowest position. The rupee has depreciated by about 37 per cent against the US dollar, an all-time low. The report has cited the 2022 devastating floods, rising inflation, political uncertainty and uncontrolled foreign exchange as factors responsible for the current state of Pakistan’s economy.

I think that while the Bloomberg report may be a surprising revelation to the world, such news has been appearing frequently in the Pakistani media since last year. Various reports suggest that one of the major reasons for the economic crisis is the smuggling of dollars into Afghanistan. In this regard, a video went viral on social media showing bags full of dollars being prepared for cross-border smuggling.

Last December, when the value of the US dollar was going out of control, it was revealed in a high-level meeting chaired by the federal minister of finance that smugglers were still involved in transferring dollars to Afghanistan through various tactics. Unfortunately, despite the assessment of the problem, no clear road map was presented to deal with this crisis.

Before the US withdrawal, around $500 million per week were provided for the expenses of the coalition forces. Similarly, the substantial humanitarian assistance from international donors and organizations including the UN and the EU was another source of dollars in the country. However, after the Taliban took over Kabul, the situation changed completely. Due to uncertainty, locals started preferring dollars over Afghan currency for transactions. Similarly, those who were looking for their future outside of Afghanistan in the emerging situation also converted their savings into dollars.

I remember that at the time of the Taliban takeover in August 2021, one US dollar was around 160 Pakistani rupees. And Pakistan’s foreign exchange reserves were around $22 billion. However, within one month, the dollar reached Rs170 in Pakistan and Rs178 in Kabul. Due to good profit margins, smugglers started purchasing dollars from Pakistan to sell them in Afghanistan.

I repeatedly warned in my past columns that the complicated situation in Afghanistan would inevitably affect Pakistan and we needed a solid strategy in this regard. Unfortunately, we are mired in internal conflicts so much that our political parties have shifted their focus away from national issues to confront each other.

Today, the situation has reached such a point that millions of dollars are being smuggled from Pakistan into Afghanistan every day, which has caused the entire Pakistani nation to suffer from inflation at a large scale.

The writer is a member of the National Assembly and patron-in-chief of the Pakistan Hindu Council.

He tweets @RVankwani